India, US ink pact to check tax evasion by MNCsDate: 28 March 2019 Tags: Miscellaneous
India and United States (US) signed Inter-Governmental Agreement for Exchange of Country-by-Country (CbC) Reports (local filing) to check tax evasion by Multi National Cooperations (MNCs). The agreement aims to ensure that all tax authorities have access to same information about MNC’s value chain and resulting tax consequences. India already has signed Multilateral Competent Authority Agreement (MCAA) for Exchange of CbC Reports with 62 countries/jurisdictions.
Features of agreement
- It will enable both countries to automatically exchange CbC Reports filed by parent entities of MNCs in the respective jurisdictions with effect from January 1, 2016.
- It will also reduce compliance burden by obviating need for Indian subsidiary companies of US MNCs to do local filing of CbC Reports.
- It is part of base erosion and profit shifting (BEPS) action plan incorporated in Income Tax (IT) Act.
- Under IT Act, it is mandatory for Indian subsidiaries of MNCs to provide details of key financial statements from other jurisdictions where they operate.
- This provides Income Tax (IT) department with better operational view of such companies, primarily with regards to revenue and income tax payment.
Country-by-Country (CbC) Report
- Template for it has been provided in BEPS Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting).
- It mandates MNCs to report annually and for each tax jurisdiction in which they do business information wrt to revenue and taxation. This report is called Country-by-Country (CbC) Report.
- This CbC report contains aggregated country-by-country information relating to global allocation of income, taxes paid, and certain other indicators of MNCs.
- It also contains list of all constituent entities of MNC operating in particular jurisdiction and nature of main business activity of each constituent entity.
- The information provided in CbC report enables enhanced level of assessment of tax risk by both tax administrations.